Filing summary
Issuer and period: The supplied filing is Golden Matrix Group, Inc.’s unaudited Form 10-Q for the three months ended October 31, 2016 (fiscal Q1 2017), not a filing identified in the text as Meridian Holdings Inc. The company was transitioning from mineral exploration to software technology, including social gaming systems and gaming IP.
Financial performance and position
| Metric | Three months ended October 31, 2016 | Comparable 2015 period |
|---|---|---|
| Revenue | $30,000 | $0 |
| Operating expenses | $87,672 | $251,237 |
| Loss from operations | $57,672 | $251,237 |
| Net income (loss) | $1,255,673 | $(1,631,882) |
| Operating cash flow | $1,356 | $(246,000) |
- Reported net income was largely driven by non-operating items: an $806,867 gain on debt extinguishment and an $807,141 gain from the fair-value change in convertible-note derivative liabilities. Interest expense was $300,663. The filing reports no clear gross margin; operating loss was $57,672 on $30,000 of revenue.
- Cash was $3,652 at October 31, 2016. Total assets were $31,152, versus current and total liabilities of $2,567,474. The company reported a working-capital and stockholders’ deficit of approximately $2.536 million.
- Current liabilities included $1,251,244 of notes payable, net of discount, $107,507 of accrued note interest, and $1,016,794 of derivative liabilities. A further $165,975 was payable to a related party.
- Revenue came entirely from Globaltech Software Services LLC, owned by the CEO; $27,500 was due from that customer at quarter-end.
Material changes and notable items
- Revenue began to appear in the reported quarter, attributed to providing use of the company’s social gaming and related systems. Management described the business as focused on software technology and the Asian market.
- Operating expenses fell from the prior-year period, while operating losses narrowed. Net results swung to income, but the swing primarily reflects debt cancellation and derivative remeasurement gains rather than operating profitability.
- The company issued 827,159,119 common shares during the quarter in conversions of convertible notes and interest. Common shares outstanding were 1,216,829,886 at October 31 and 1,524,597,419 at December 12, 2016. A 150-for-1 reverse split was approved after quarter-end.
- Debt cancellations were exchanged for the transfer of mining claims; management said the company no longer held mining assets. The Luxor gaming-IP purchase had been financed partly with a $2,374,712 convertible note; $1,045,712 of its principal remained at quarter-end.
Outlook, risks and controls
- Going concern: Management stated that substantial doubt existed about the company’s ability to continue as a going concern. It expected to seek public or private debt or equity financing and, longer term, to rely on revenue and profitable development of its gaming business.
- No specific revenue, earnings, or cash-flow guidance was provided. Management said results were difficult to forecast and that there was no assurance the company could address the risks and challenges of a development-stage business.
- Disclosure controls were reported as ineffective, citing the absence of independent directors and an audit committee financial expert, as well as gaps in disclosure controls. The evaluation text refers to April 30, 2015, which investors may wish to reconcile with this filing period.
- The company reported no known material legal disputes. Forward-looking statements are subject to risks and uncertainties, and the filing disclaims an obligation to update them except as required by law.
Most important facts to verify
- Confirm the issuer identity: the filing text names Golden Matrix Group, Inc., whereas the request metadata names Meridian Holdings Inc.
- Assess the durability and collectability of the $30,000 in revenue, given that it came entirely from a CEO-owned related party.
- Review available financing, near-term debt maturities, conversion terms, and the company’s ability to meet obligations with only $3,652 of reported cash.
- Separate recurring operating performance from the large debt-extinguishment and derivative fair-value gains when evaluating the reported net income.
- Verify the scale and effects of share conversions and the post-quarter reverse split. The filing’s comparative weighted-average share and per-share figures appear unusual; the text does not provide a clear reconciliation.
- Reconcile filing inconsistencies, including references to October 30 versus October 31 and the stated working-capital deficit versus the balance-sheet totals.